(Bloomberg) — The blistering rally in Hims & Hers Health Inc. that’s captivated meme-stock traders has ground to a halt, setting up a pivotal test when the telehealth company reports earnings after the market closes Monday.
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Regulators on Friday raised a roadblock to the company’s business of selling cheaper copies of branded anti-obesity drugs like Novo Nordisk A/S’s Wegovy. Hims & Hers shares have soared 458% since it announced the move into weight-loss treatments in December 2023.
The company has said its personalization strategy — to compound drugs based on an individual’s need — will enable it to continue selling the products. Investors will need to be convinced that that will pass muster legally, said Michael Cherny, an analyst at Leerink Partners.
“We do see potential for a reset in the stock after it had been clearly driven up by excitement over the broader weight loss opportunity,” Cherny wrote in a report Friday. He has the equivalent of a hold rating on the stock with a price target of $24, more than 50% below where it ended last week.
Companies with patented drugs like Novo typically enjoy years of exclusivity before cheaper copies flood the market and drive prices down. But Novo has been unable to meet the demand for Wegovy and Ozempic in the US, clearing the way for copycat versions.
On Friday, the Food and Drug Administration declared the shortage over, sending Hims & Hers shares down 26%. The ruling means compounding pharmacies no longer have permission to make exact copies of Novo’s drugs as they did during the shortage.
Retail traders’ interest in Hims & Hers picked up this year after the company rolled out an ad, later shown on the Super Bowl, that touted its weight-loss medications while railing against the pitfalls of the US health system.
In moves reminiscent of the meme-stock days of GameStop Corp. and AMC Entertainment Holdings Inc., retail traders have been faithful buyers of the stock since the commercial debuted Jan. 28. Investors regularly cheered on the stock on popular day-trader chatrooms like the WallStreetBets community on Reddit as well as the Stocktwits platform.
Bears, though, have been steadily increasing bets against the stock: Shares out on loan — a proxy for trades by short sellers — has risen to 33% of the stock available for trading from 14% at the beginning of October, data from analytics firm S3 Partners show.